Jabu manufactures and sells Product X. During the most recent financial period, he sold 500 units at R750 each. There were no units of Product X in opening or closing inventory. Sales people are paid a commission of 5% on sales. The following additional information is available for this sales level:

Fixed administrative cost per unit R90.00

Total fixed manufacturing overhead R120 000

Total fixed marketing cost R50 000

Direct material usage per product 2 kg

Direct material price per kilogram R14.50

Total direct labour cost R47 500

Required:

All manufacturing cost increases with 10%. The marketing director estimates that sales volume will increase with 5% if an advertising campaign of R10 000 is undertaken. What is the operating income for Jabu?

Refer to above. Do you think that it is viable for Jabu to launch the advertising campaign?

(a) Calculate increase in total contribution

		R10 000
		R14 403
		R4 403
		R576.10
		None of the above

(b) Calculate increase in sales units

25 units

500 units

525 units

600 units

None of the above

(c) Calculate increase or decrease in total fixed cost

		R20 000
		R15 000
		R14 403
		R10 000
		None of the above

(d) Calculate increase or decrease in operating income

R14 403

R4 403

R10 000

R14 000

None of the above

(e) Refer to above. Do you think that it is viable for Jabu to launch the advertising campaign?

		No, it is not viable to launch the advertising campaign
		Yes, it is viable to launch the advertising campaign